Wall Street vs. The Small Investor: Who Wins?

0:00Folks, is Wall Street over single family home investments? Obviously, there's been some new regulations about the size and who can and can't. But obviously, there is that massive loophole of build for rent. But you know what, folks? I think Wall Street Journal is figuring out that being a single family landlord is hard, and they might be looking to do something else. Let's have that conversation with Dana, the CEO of Hemling. How you doing, Dana? I'm great. Thanks for thanks for having me as I think this is a hot topic because it goes two different ways, one with AI and one without AI. Well, I'm going to love your experience on this because again, I've been around long enough to I actually remember the day like it was yesterday when I first heard that Wall Street was buying single family homes. I want to call it 2009. It might have been early 2010. But the reason I remember it like yesterday is I was running a process. Every Monday morning in my market of Fresno, California, they would do what they called a load.

1:03And what was a load? A load was the foreclosures or ares that were processed the week before. They would all be loaded on Monday morning at like 8am between 8am and 815. They'd all be loaded. And then by the end of Monday, I would figure out which ones I was offering on. And I figured out that I could offer 19% below list price, not 20 because 20 they won't take, but they would take 19. And by the by Tuesday or Wednesday, I'd have two houses in contract. And I did I did that for 18 months, just like clockwork. And then I remember one Monday, nothing loaded. I'm like, that's weird. Maybe it was a data issue, upload issue, whatever. I wait for I wait for Tuesday, nothing. Then the next week comes the next Monday. I'm like, oh, maybe someone who's on vacation. I mean, you could tell yourself any number of reasons, right? The next Monday comes nothing again. And I'm like, okay, what's going on? Something is. Yeah. So I called my escrow officer in a couple of real estate agents who I'd done dozens of deals with.

2:08And they said, Michael, you're not going to believe this. I said, what? He goes, Wall Street bought the entire book. I'm like, what do you, what do you mean they bought the entire book? Well, as you know, we load it. We have this load, right? That's their vocabulary that we would do every Monday. They bought every home. And you know what was worse? They paid list price. Wow. And that day, the market changed forever. Yeah. Wall Street showed up. It was crazy. I remember last year. Yeah. Well, and I think that, you know, my experience is kind of a twofold with it. And you have a different experience with it. Mine has been talking to these Wall Street investors or these large institutions. Because they come to us always to understand what's the latest with technology. All of that should we move over to Hebblin. I'm like, we have cash basis that have counting. You're going to have to use something else for gap bases of counting. All of that. But it's really interesting because I've heard it from two different sides.

3:12One is on the Wall Street side that has tried single family homes. When I talk to every single one of them, it's the same sentiment. This is harder than I expected. We thought that we could get a economy of scale and efficiency. But every single home is uniquely different. Everything is so much more challenging to do. We don't like being dispersed in these markets. And kind of the model that they work with with Grave Star of like, hey, buy an apartment complex, put it on site manager and all the, all of the units are in one area and I can see them all. And I just look at just those ones and I can forecast what a turn is. And I have a standard cost for everything. That works so much better. And so most of the more institutional investors I talk to who've been in it in these markets, see like tier two, tier three markets are very like anti single family homes at this moment.

4:12And they should be. I mean, this is the problem that this was the error of their ways, again, buying the entire book. Yes, somebody who had looked at the entire book for 18 or 18 months. So what would that be? 52 plus 26, 78 weeks in a row. I can tell you all the houses were not equal. Some of them were completely trash, some were tiny, some were brand new. And you, they're all different. They're all different unique. So again, buying the entire book just because it was cheap. You know, it might have worked Dana for the first six months. But once they showed up, prices started to zoom up and the market was vastly different. So this, this is why when I talk to them, and I did talk to them probably a year in because they came to me and they're like, Hey, you were doing this for a long time. We're, we're, we're basically sucking wind. We can't make this work. What are we doing wrong? And I'm like, you freaking morons bought everything over town. You had, you, you, yeah, you didn't have a buy box. You didn't know what you were doing. All you had was billions of dollars and you spent it. That was your unique advantage. You didn't know Fresno from a hole in the wall.

5:14Yeah, because they find a hole for folio and all these different areas. Now, here's an interesting one because I'm sure you heard the news with KKR. So KKR is private equity and they have 10,000 units that were under Avenue one, right? Yep. And then they suddenly announced Avenue one had outsourced the property management. So said like 1500 units go to North Point, 4000 go to mind, 3000 go to Everest, 1000 go to pure. Well, they just announced they're just going to bring it all in house. And the reason is they're really bullish on AI. So those 10,000 units overnight, these property management, traditional property management companies got screwed. They lost, you know, 30% of their units that are management. Yeah, they're making people say, and then KKR brought it in house. And a lot of what they said was AI, AI, AI. But I think both you and I know it's really, really hard to make that work.

6:17And you need, you really, really need to know that like this is a people business and having people there who are physically viewing everything. So that's going to be an interesting one that I want to watch with my popcorn. It's going to be a disaster. Just stop stopping. You have to be nice because you talk to these people. We run in very different circles. They're going to be more spectacularly. This is going to be a complete disaster. AI is going to make this. Oh my God. So yeah, but that was a really interesting one that they said they'd bring it in house. And now I've seen this with a lot of these private equity companies. And I've just heard it on Monday, private equity investor reached out to me. It was like, hey, I'm doing a roll up on property management shops. I'm going to buy them all. And the reason the numbers are going to work so much better and I'm going to make so much money is because of all the AI. And I'm going to have an AI property management company. And you know, I'm always trying to be at the forefront of technology, but I'm also trying

7:20to say what works. Yeah. And what doesn't work. And so it's going to be really interesting because obviously we use AI and so much of what we do. But we also call bullshit on it like, hey, a service professional. You need the best contractors. Your AI is not going to make it pain or better. Yeah. Yeah, it's not going to work. And also the best contractor is not going to want to talk to the AI bot to talk about what on the turnover checklist is approved. Like that's not going to happen. Not going to happen. And they need to talk to a human who says, yes, we've got the money for this turnover. This is what it needs to be done and this and that. And so that's a very, very interesting one to me. It's not interesting. So these people with too much money and too much hope for AI are going to fail. Perfect. So when you open with that comment, I'm like, okay, like if you're going to, if you're going to roll up property management firms in a state or an area like LA County or San Francisco or what that probably could work because there's a lot of mom and pop property

8:21management firms with 300 to 600 units or whatever it is. Yeah. I think there's a roll up play there for sure. And I even think AI could be helpful. But if you're talking about, hey, I'm going to own the West Coast, you know, California Oregon, Washington, Nevada, Colorado, all of that, you're going to blow up spectacularly. All states, all states are different. What I should, I mean, there's again, people with too much money and hope for tech and a people business like you mentioned. I mean, I'll tell this story. So Olivia and I were traveling. We went to an event and I had to change a flight. Happened to be Southwest. I've already talked shit about them. But they sent me to this AI bot to try to change my flight. After about three or four minutes of completely, complete utter failure on this AI bot, just to change a flight. I hung up Swar. I never travel Southwest again and bought a new ticket on a new airline to get where I needed to go because it was just, yeah, it was another six or 800 bucks for both of us.

9:22But the amount of stress, I will never fly Southwest again because they tried to shove an AI. And I kept trying to hit zero or pound to get me to a live person. I was willing to wait for minutes. You shove an AI bot down my throat and they're not immediately helpful. F you. Yeah. Yeah. Crazy. And that's on the tenant, Dana, that's paying you. Oh, disaster. Yeah. And that's where I think the best companies actually don't start with an AI first approach. They start like in this business. I think if you're AI tech company, start with AI, right? Like you start with saying, Hey, we've got to have the people. And then you say, what can the AI do better than the people? Let's test it. And then the biggest thing is those decision branches of when does this go to AI? When does this go to human? And the AI should be a more delightful experience than the human. And then you know you should use AI for that experience. And anything that the AI was like, Hey, that wasn't as good of an experience as just talking

10:24to human. You route that to the human. And I think that's where you have to start versus starting with AI. I mean, just think about my experience and we can relate it to tenants. I do not generally call Southwest Airlines. When I call them, it's because something needs to change. Yeah. And that's a stressful situation. We were sitting in an airport ready to go. We were already exhausted, right? We needed to get home. We'd like to be home four hours early. And they sent me to this AI bot that was not helpful. Yeah. So I got to plugged up toilet or this or that. They're calling an AI bot. It's going to tell them to plunge their line. I mean, can you imagine the utter catastrophe that's going to be? Yeah. Yeah. Exactly. But yeah, it's it is interesting because you hear from it like two different sides. Some of Wall Street being like, F this. I'm jumping out of this industry entirely of single family homes. And if we invest, we're going to do multifamily and just do more of like a rate strategy of like

11:25just larger, larger buildings. And then on the other side, the flip side, you see people saying, oh, but with AI, maybe we could do it a lot of these private equity shops. And so it's going to be really interesting. I'm excited. I'm excited to watch it unfold because I think with AI, I still knew there's still so much hype. And as with any technology, it becomes very pragmatic over time of what actually works and what doesn't. So this is the evolution because again, I was lucky enough to build friendships with some of these guys. They again, they went from a buy everything strategy because they had money and they paid less price, which was just crazy. Crazy. It had my story show. Yeah. Yeah. Yeah. Yeah. It's crazy. So that was a disaster. And rightly so. Then they did evolve to a buy box. And it wasn't a great buy box. But they were saying we only want to buy. They want to buy three or four bedroom homes built in the last 50 years. Uh huh. A little bit better than buy everything. But not, but not great. You're still all over town. You know, all three foreign bedrooms are not the same, you know, you know, the story.

12:25But I think it evolved to build for rent. And I do think build for rent is the right strategy because again, it, you can control everything. It's all in one area. It's sure spread out a little bit, but it's all in one area. It's like a garden, it's like a garden apartment complex, just lots of land. I think build for rent is the answer. Like if I was somebody with endless, like if I had a nine figures of capital to deploy, I would do build for rent because my ideal portfolio is 20 single family homes that are less than five years old. That's my ideal. Like if you, somebody said, Hey, what do you want to do? Do lots of calls. Everything's new, right? The first five years of maintenance should be nothing, but you should create reserves nonetheless. But and they're all in one place. So I do think Wall Street should lean into build for rent. They successfully got a caveat in this, you know, Valchand not buy single family homes, but build for rents. Okay. So that's, I mean, if I had, if I had a magic one or could give these folks coaching, it's like lean into build for rent. That's where I would go.

13:26Yeah. Yeah. I love it. I couldn't agree more. I think that the build for rent, the whole concentration of all the properties of one area when you don't know the market well enough and you're looking not for someone who's born and raised in the market, but maybe an hourly worker W2 who exits at the front office and helps do the local administrative stuff and overseas that you really need to focus on reducing your scope of knowing the market and just knowing that neighborhood and that community. And I think you're right. That's a much more of a winning strategy for Wall Street. Yeah. It's easier. Better with economies of scale. Yeah. You don't have all these variability. I mean, just a better strategy. So that's where I think Wall Street should go is build for rent. They should just lean into that and treat. You can actually capitalize them like apartment buildings because they're just, you know, horizontal versus vertical. Yeah. Yeah. Exactly. Well, if somebody wanted to check out Him Lane because that's what mom and pop juice, mom and pop juice, Him Lane Wall Street, you know, again, cash accrual versus, you know,

14:29gap exchange. But where should they go, mom and dad to check out Him Lane? Although institutional investors are these larger ones come to Him Lane and use others for accounting. So we learn that we learn quite a bit from them as well. But yeah, go to HimLine.com. We have free resources on there, everything for rent estimates to helping you advertise, find a place to tenant and then obviously management too. Awesome. And again, they have free options and paid options, all of that's there for you. And again, something we don't touch enough. Go to HimLines.com slash resources if you are a new landlord because they got all kinds of localized state-based tenant stuff. So go get smarter, go get educated, HimLine.com slash resources. Later. Great. Thanks.